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Household incomes to fall for fourth consecutive year

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by Gill Montia
Household incomes to fall for fourth consecutive year

UK households face a typical £780 drop in disposable income this year, the BBC has reported.

A study by Deloitte, seen by the broadcaster, argues that tax rises, government spending cuts and higher commodity prices will force inflation above its current 4% level.

The financial services firm therefore predicts that 2011 will see real earnings fall for the fourth year in a row, with real incomes only begin to rise again by the end of 2012.

Deliotte’s chief economic adviser, Roger Bootle, told the BBC that consumer spending is likely to drop by 1% in 2011 and by 0.5% in 2012.

He also warned that attempts to reduce inflation by raising interest rates, even by a fraction, could prove “disastrous” because of existing high levels of debt and the current state of the UK housing market.

The Deliotte report comes alongside Bank of England Governor, Mervyn King’s, warning that the “massive” economic challenges caused by high levels of debt would only be worsened by interest rate hikes.

Addressing the European Parliament’s Systemic Risk Board yesterday, Mr King said: “The economic consequences of high-level indebtedness now would become more severe if rates were to rise.”

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News posted: May 3, 2011

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